Urban cooperative banks (UCBs) in India have been in the spotlight in recent months, after a scam at the Mumbai-headquartered Punjab and Maharashtra Cooperative Bank (PMC), rang alarm bells. Now, in a bid to avoid any such crisis in the future, the Reserve Bank of India is set to strengthen regulatory guidelines relating to UCBs.
On September 23, the RBI had barred the PMC bank from doing business for six months and imposed restrictions on deposit withdrawals after several irregularities were unearthed at the cooperative bank. It was found that dummy accounts were used to hide the huge exposure the bank had to the now bankrupt real estate developer HDIL. Over two-thirds of the PMC bank’s loan exposure was to this single group.
With a view to reduce concentration risk in the exposures of UCBs and to further strengthen their role in promoting financial inclusion, RBI will revise regulatory guidelines primarily relating to UCBs exposure norms for single and group/interconnected borrowers, promotion of financial inclusion and priority sector lending.
“A draft circular proposing the above changes for eliciting stakeholder comments will be issued shortly. These measures are expected to strengthen the resilience and sustainability of UCBs and protect the interest of depositors,” RBI Governor Shaktikanta Das said on Thursday.
An appropriate time frame will be provided for compliance with the revised norms, according to the central bank.
Another issue related to UCBs that has been raised from time to time is that of dual control. Unlike other scheduled commercial banks, RBI doesn’t have full control over UCBs, which also fall under the control of Registrar of Cooperative Societies.
The central bank already has a central repository of information on large credits (CRILC) of scheduled commercial banks, all India financial institutions and certain non-banking finance companies. This was done with several objectives, including strengthening offsite supervision and early recognition of financial distress.
With an aim to build a similar database of large credits extended by primary UCBs, those UCBs with assets of Rs 500 crore and above will also be brought under the CRILC reporting framework. Detailed instructions are to be issued before the end of December.
It has also been decided to prescribe a comprehensive cyber security framework for the UCBs, based on their digital depth and interconnectedness with the payment systems landscape.
“The framework would mandate implementation of progressively stronger security measures based on the nature, variety and scale of digital product offerings of banks. This would bolster cyber security preparedness and ensure that the UCBs offering a range of payment services and higher information technology penetration are brought at par with commercial banks in addressing cyber security threats,” the central bank said.
The measures would include implementation of bank specific email domain, periodic security assessment of public facing websites and applications, strengthening the cyber security incident reporting mechanism and governance framework and setting up of security operations center.
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After the scam at PMC Bank was unearthed, a forensic audit had been ordered. The final report of the forensic audit is expected by the end of this month, said Das.
Meanwhile, the PMC Bank with the help of professional valuers, is assessing the realisable value of assets, which have been mortgaged by companies that had availed the loans as well as the other assets identified by the Economic Offences Wing of the Mumbai Police and the Enforcement Directorate.
A coordination mechanism has also been put into place between the administrator appointed on the PMC Bank, EOW, ED and the RBI.
“We have put in place a coordination mechanism to monitor these things regularly and take steps for monetisation of these assets after obtaining the permission of the court as may be required under the law,” said Das.
A final call will be taken once the report of the forensic audit is submitted to RBI and the realisable value of the assets is ascertained, he added.
